Tuesday, July 21, 2009

Don't Dig Yourself Deeper Into Debt - Part 1

Tip #166 - Don’t Dig Yourself Deeper Into Debt – Part 1. Getting out of debt is not a forte of mine for, fortunately, good reason. I have never been in debt. Well, I have a mortgage on my home that we’ve always been able to handle, and if push came to shove, I could pay it off if I had to. What I mean though is that I’ve never been in credit card debt, student loan debt, or any type of consumer debt. So I have no 5-point plan or 7-point plan for people to get out of debt. But I do have friends and family members who I believe are in debt and I wish I could offer help or advice to those in that situation. But talking about money to people I know in real life is a bit of a challenge. Most people who are in debt don’t advertise it, and many who are in debt don’t really want to hear what others think they should do about it. But I’ve been thinking about it a lot lately, so I figured I would at least write my thoughts here and maybe help someone I don’t know.

Once you are in debt, don’t dig yourself deeper into it because you don’t think you can pull your way out of it. If you are $50,000 in debt, don’t run out and spend another $10,000 because it’s just a bit more debt. That’s like a person who is 50 pounds overweight thinking it’s okay to eat more, because what’s a few more pounds? Well, truly, it’s a few more pounds you need to get rid of when you decide you are too fat. Just like $10,000 is extra money you need to pay back when you decide you need to take control of your finances.

Before you do anything, take a realistic look at your spending habits and figure out why you are in debt. If the debt is being carried over from a foolish point in your life when you were spending more than you earned, but you are not anymore or if it was from a single event in your past like paying for college or a big medical bill, then you are not in too bad of shape. But if you are still spending more than you earn, then there is a lot more work to be done.

In either case, write out a plan of attack to pay back your debt. Paying back $20,000 or $50,000 isn’t going to be easy. That’s for sure. But it’s not impossible. Either of those amounts sounds overwhelming. So break down the amount into smaller amounts so that your goal is attainable. Paying back $20,000 can be done easily in about five years by packing back $4,000 (plus any interest accruals) per year. Does paying back $4,000 seem attainable to you? If not, break it down even further. How much does that work out to per month? About $333. Now that sounds like a manageable amount. Now you have a plan of attack. You plan to pay off your debt of about $20,000 by paying it off in about five years by paying back $333 per month. In the second part of this series, we’ll talk about how to get that $333 and how to stay out of debt.

In Real Life (IRL) – The reason I’ve been thinking about debt a lot lately is because I have my suspicions that someone I know is deeply in debt because of some expensive spending habits and some bad times with the current economy. And I suspect these people aren’t alone in this situation. What gives me great pain, however, is to see these people continually spend money as if they are in no financial trouble at all.

My family who is in decent financial shape doesn’t spend money on such luxuries that these people allow themselves. And that bothers me. Not because I am not living the good life (I am quite happy with my expenses), but because people I care about are living beyond their means. Whatever debt they may have already been in, they are continually adding to it as if just a little bit more won’t matter. I’d love to sit them down and ask them to write up a plan to pay back their debt and then ask them to write up a reasonable budget to live on. But I can’t, because it’s not my business. They are grown adults who make their own choices. I try to be a good example to them but it seems not to make a difference. So I struggle with my choice not to say anything to people who I think are figuratively drowning in debt. I’ll talk more about it in the second part of this series when we discuss how to come up with the money to pay back your debt.


Utica Herbalife said...

Great information, I can't agree more!

Anonymous said...

There was a bit on the news yesterday that said the average person holds over $15K in credit card debt! They interviewed a couple that had over $60K in credit card debt! What the heck? Why in the world do the companies continue to give them credit?

Good advice, too.

Michele said...

Barking Dogs, that is so scary! I remember when that number was about $4,000.